May 17, 2024
To the Esteemed Members of the Securities and Exchange Commission, I am writing to convey my deep concerns regarding the proposed Rule SR-OCC-2024-001, which suggests adjusting margin thresholds, particularly during periods of heightened market volatility. This adjustment raises significant alarm as it appears to shift the goalposts precisely when clearing members are grappling with their financial obligations. Margin calls exist to prevent clearing members from overextending themselves and to ensure they possess sufficient collateral to cover potential losses. By altering margin thresholds during volatile periods, we risk a scenario where clearing members may not be mandated to maintain adequate collateral, thereby increasing the likelihood of default and introducing instability into the financial system. This proposal raises fundamental questions about the integrity of the options market and the Options Clearing Corporation's (OCC) role in risk management. While I applaud the SEC's initial rejection of this rule, I strongly encourage you to uphold this decision in any future considerations. The grounds for rejection, as outlined in Section 17A(b)(3)(F) of the Exchange Act and Rules 17Ad-22(e)(2) and 17Ad-22(e)(6), are well-founded and underscore the importance of safeguarding the financial system. The OCC, as the central counterparty for options and futures contracts traded on U.S. exchanges, bears a critical responsibility in upholding the integrity of these markets. Allowing adjustments to margin thresholds during volatile periods could incentivize risky behavior, akin to "moving the goalposts" in the middle of a high-stakes game. This could lead to a situation where clearing members are allowed to "kick the can down the road" when facing financial difficulties, ultimately increasing systemic risk. The proposal's use of "idiosyncratic volatility control settings" further exacerbates concerns due to the lack of transparency in their calculation and implementation. Without clear guidelines, there's a potential for arbitrary adjustments that could favor certain market participants or introduce unpredictability. The redacted supporting evidence regarding the calculation of margin thresholds adds another layer of opacity, hindering a comprehensive evaluation of the proposal's impact. Moreover, granting the Financial Risk Management (FRM) Officer unchecked authority to make unilateral decisions during periods of high market stress raises concerns about potential conflicts of interest. Balancing the interests of the OCC and at-risk Clearing Members could prove challenging and might not always lead to the most equitable outcomes. Key Points: Margin Threshold Adjustments: The proposed rule allows for adjusting margin thresholds during high volatility, potentially reducing the collateral required from clearing members. This could incentivize risky behavior and increase the likelihood of default. Lack of Transparency: The calculation of margin thresholds lacks transparency, raising concerns about fairness and potential manipulation. The redacted supporting evidence further undermines transparency and accountability. Unchecked Authority: The proposal grants the FRM Officer unchecked authority to make unilateral decisions during periods of high market stress, raising concerns about potential conflicts of interest. Impact on Market Integrity: The rule's lack of transparency and potential for arbitrary adjustments could erode trust in the regulatory framework and undermine the integrity of financial markets. In conclusion, I urge the Securities and Exchange Commission to meticulously reconsider Rule SR-OCC-2024-001. It poses a substantial threat to the stability and integrity of the financial system. By prioritizing clear guidelines, transparent calculations, and checks on discretionary authority, we can collectively safeguard investors and maintain the stability of the financial markets. Thank you for your time and consideration. Sincerely, Household Investor